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Putative Commercial Class Action Remanded based on CAFA’s “Local Controversy” Exception

The U.S. District Court for the Northern District of West Virginia remanded a borrowers’ putative class action in a dispute involving appraisals in mortgage loans.  Alig v. Quicken Loans, Inc., No. 5:12-CV-115, 2012 U.S. Dist. LEXIS 144990 (N.D. W. Va. Oct. 9, 2012).  Plaintiffs sued Quicken Loans, Inc., a Michigan company, a West Virginia title company, and a proposed class of West Virginia real estate appraisers.  Defendants removed the action from state court based on diversity jurisdiction, 28 U.S.C. § 1332(d) (as amended by the Class Action Fairness Act of 2005 (“CAFA”)).  In their motion to remand, plaintiffs conceded that the court had diversity jurisdiction; however, plaintiffs argued that (1) all of the proposed plaintiff class members are citizens of West Virginia; (2) the class of defendant appraisers consists of West Virginia citizens whose conduct forms a significant basis for the class claims and from whom the plaintiffs seek significant relief; (3) the principal injuries to the proposed plaintiff class were incurred in West Virginia; and (4) no other similar class actions have been filed in the previous three years. As such, the plaintiffs argue that the action falls under the “local controversy” exception to CAFA, thereby precluding federal subject matter jurisdiction pursuant to 28 U.S.C. § 1332(d)(4)(A).

The district court remanded the case finding that the plaintiffs established by a preponderance of the evidence that the class of defendant appraisers is a local defendant from whom significant relief is sought and whose alleged conduct forms a significant basis of the class claims asserted. Since the loans at issue were obtained through alleged false appraisals provided by the class of defendant appraisers, the court explained that this factor weighed in favor of finding that the borrowers were seeking “significant relief” from the class of defendant appraisers. The court concluded that the borrowers established that at least one of the local defendants formed a significant basis for all the claims asserted in the action, again largely because the loans at issue were obtained based upon the allegedly false appraisals. Additionally, the class of defendant appraisers “is not merely peripheral because their conduct serves as the basis of each loan and claim,” the court wrote.

CAFA’s “local controversy” exception is difficult to establish, and the majority of courts deciding remand motions based on this exception find that the burden has not been established.  However, under the Alig opinion, which remanded the class action because at least one of the local defendants formed a significant basis for all the claims asserted in the action (even though it seems apparent the target defendant was Quicken Loans, Inc.), remanding class actions could become more common.

Melody McAnally